Playboy pins hopes on Net

After turning on his PC-TV, a customer watches an erotic adult film on cable. When it ends, he clicks over to the Net for an online chat with the sultry star just featured. Later, he buys a keepsake copy of the video on the same Web site.

Although this scenario is technically possible now, it's still a hot commercial fantasy for executives at Playboy Enterprises.

"You can take the idea of the magazine--which is sort of sexy, good times, fun for grown-ups--and then create programming around that idea," Christie Hefner, CEO and chairwoman of Playboy Enterprises, said in an interview with CNET's NEWS.COM. "That's what we did in television, and that is what we're going to do on the Web."

Playboy's Christie Hefner on increasing new media investment

At least for now, the complete convergence of television and personal computing is an academic proposition, and the company's Internet revenues remain relatively small against those of its publishing and television groups. Nevertheless, this year marks Playboy's strongest effort to date to extend its Rambo-like brand power to the global network.

Despite the slew of X-rated sites on the Net, Playboy Enterprises is betting that its marketing force, multimedia platforms, pictorials, and its articles--yes, articles--can make the company's adult entertainment business extremely profitable in digital form.

And Playboy is no ordinary company plying the sex trade online. It is nothing short of an American icon, a rare agent of social change that is also an emblem of brazen capitalistic drive.

Traditional businesses and Netrepreneurs alike are following the company's moves closely as a potential model for economic success online. From a cultural perspective, Playboy's digital reincarnation could create a new generation of followers: young, hip, well-paid Web surfers, many of whom weren't even born when Hugh Hefner published its first issue nearly half a century ago.

"They have something everybody wants: a name and semi-quality pornographic pictures," said Kendrick Noble of Noble Consultants. "Marketing and things directly associated with the magazine have continued to be fairly successful. So they should be able to find new ways to utilize the Web. Video and imagery have worked out for them, and that is essentially what the Net offers."

Playboy's free Web site launched in August of 1994. Last July, the much-anticipated Cyber Club opened, as did its online Playboy Store. Now the advertising-supported Playboy.com site gets 1.4 million page views per day. Overall, online catalog sales and Cyber Club subscriptions took in $4 million last year, without the company devoting any marketing to the sites. The profits aren't much compared to the rest of the company, but 75 percent of Net revenues were collected from customers who were buying from Playboy for the first time.

As an example of the opportunity for new business, Christie Hefner points out that the majority of the 25,000 Cyber Club members do not subscribe to the magazine. The Cyber Club charges up to $60 per year for access to archived articles and photos as well as Playmate chats and their home pages. Pay-as-you-go transactions also are being tested.

"We think video streaming will be a reality, and we'll be able to sell both pay-per-view and subscription programming over the Web," Christie Hefner said. "I think it is the most exciting business opportunity the company has ever been presented with."

The goal, she said, is "to make Playboy.com the first site that young men go to on the Web."

The undertaking is just the latest Herculean turn engineered by the younger Hefner, who joined her father's 45-year-old company in 1975 and was named president in 1982. She was appointed to her current positions a decade ago.

Under her guidance, the company made a profitable foray into television in the early 1990s, a move that allowed her to cut back mounting losses. As a result, Playboy's stock soared 70 percent to $17 per share and revenues rose to $297 million in 1997.

So when Hefner spun out a New Media division in January, continuing the family's maverick traditions, it was clear that the Net was being primed to harvest a larger share of the company's future earnings.

Apparently sharing her father's uncanny sense of timing, Hefner may be making her online push at a propitious moment. Because of increased competition and other factors, the magazine's advertising revenues plummeted in the 1980s and its circulation base shrank from 6 million in 1972 to 3.15 million last year.

Despite the remarkably unabashed beginnings of its flagship publication, analysts say the magazine has become a bit stale of late--and that the Net could be a perfect shot of revitalization for the company.

"You get racier coverage in Cosmopolitan than Playboy--it has lost its edge," said Dennis McAlpine, an analyst for Josephthal, Lyon & Ross. "So the Internet may introduce younger people to the Playboy name."